Benchmarks moved higher following news that Greece was closer to fixing the crisis over its bond-swap deal. With investors sensing that Greece had reduced its chances of defaulting on its debt, financial stocks clocked up strong gains. Cross-Atlantic developments also negated the effect a modest increase in unemployment claims.
The Dow Jones Industrial Average (DJI) gained 0.6% and closed the day at 12,907.94. The Standard & Poor 500 (S&P 500) inched up a percent to finish yesterday’s trading session at 1,365.91. The Nasdaq Composite Index jumped 1.2% and settled at 2,970.42. The fear-gauge CBOE Volatility Index (VIX) plunged 5.9% to close at 17.95. Consolidated volumes on the New York Stock Exchange, NYSE Amex and Nasdaq were roughly 6.1 billion shares, lower than the daily average of 6.9 billion. The advancers enjoyed an edge over the decliners as for every four stocks that gained on the NYSE, only one stock closed lower.
Since late December, investors have been enjoying a run of encouraging domestic economic data. The improving scenario in the jobs and housing markets in particular has compelled investors to put their faith in a recovering economy. Yesterday was the eve of the third anniversary of the Dow’s lowest level during the recession. Since then, the blue-chip index is now up 97%. Only last week, the Dow soared and settled over 13, 000, a feat achieved for the first time since May, 2008. Other fellow benchmarks also shared the laurels after the S&P 500 closed at levels last seen in June 2008 last week and Nasdaq crossed the 3,000 mark, though it failed to sustain that level. Nonetheless, the Nasdaq is dwelling at levels last seen in December 2000 or at the fag-end of the dot-com bubble.
Things definitely look better on the statistical count. But, several important indicators are still below pre-recessionary levels. Unemployment rate is still higher than the pre-recessionary levels. Additionally, cross-Atlantic concerns have dented enough damage to the domestic as well as the global financial arena.
The week had started on a low note and looked incrementally difficult for investors with apprehensions surrounding the Greek bond-swap deal. European concerns also dragged the benchmarks to their biggest fall for this year. However, things have turned around for now with reports of a large number of investors agreeing to participate in the bond-swap plan. According to reports by The Associated Press, 75% of investors are in favor of the deal, while a CNBC report quoted a Greek official stating that ‘voluntary take-up of the offer’ escalated to roughly 95%. Reportedly, Greece desperately needs 90% of investors to exchange their bonds, enabling Greece to secure its $173 billion bailout fund. The investors, who will be part of one of the largest sovereign restructuring exercises, will suffer a loss of nearly 74% of their investment value.
With things looking optimistic, fears eased and investors made a comeback to the markets betting their bucks. This week itself, the fear-gauge index had moved below the 50-day moving average, and is now sufficiently lower at 17.95. As for the benchmarks, till the end of Tuesday’s trading session, the Dow, S&P 500 and the Nasdaq were down 1.7%, 1.9% and 2.2%, respectively, for the week. Markets have recouped most of their losses now and till the close of yesterday’s trading session, the Dow, S&P 500 and Nasdaq were down 0.5%, 0.3% and 0.2%, respectively.
Financials enjoyed their second day of strong gains and the Financial SPDR Select Sector Fund (XLF) gained 1.0%. Among the gainers, American Express Company (NYSE:AXP), Citigroup, Inc. (NYSE:C), Morgan Stanley (NYSE:MS), JP Morgan Chase & Co. (NYSE:JPM), Wells Fargo & Company (NYSE:WFC) and U.S. Bancorp (NYSE:USB) jumped 1.3%, 2.3%, 1.7%, 1.2%, 3.3% and 1.8%, respectively.
Cross-Atlantic developments over-shadowed the meager increase in initial claims. According to the U.S. Department of Labor: “In the week ending March 3, the advance figure for seasonally adjusted initial claims was 362,000, an increase of 8,000 from the previous week’s revised figure of 354,000”. Consensus expectations had predicted initial claims to come in at 352, 000. However, given that the labor market has consistently showed improving trends, this one off dismal show can be overlooked. This report comes a day after payroll processor Automatic Data Processing reported that 216,000 new jobs were added by the private sector during the month of February. Investors now keenly await nonfarm payroll data scheduled for release today.
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